Automated securities trading systems are well known in the art, as are systems for automated bidding, valuation, accreditation and exchange of securities. However, there has been a long-standing, well-recognized, unmet need for an automated, real time market for the exchange of restricted securities. Companies often issue restricted stock for various purposes, such as, for example, to provide a form of compensation, to provide a means for raising capital through private investment, and as a component of a corporate reorganization. Such restricted stocks are often sold through broker “networks,” in which brokers negotiate value for purchase and sale in what can only be termed an “old school” fashion—particularly in light of the penchant for modern era, electronically-based trading. Restricted securities comprise an estimated one-trillion dollar market, with only a cumbersome and highly-regulated means available for trade. Generally, such restricted securities may include stocks, options, warrants or restricted share units. Numerous accreditation and documentation requirements limit the availability and exchange of restricted securities. Navigating through such inherent limitations can be painstaking and tedious.
While there are numerous methods and automated mechanisms facilitating the transfer of publically-traded securities, effective means for facilitating the automatic placement and sale of restricted securities are completely lacking for a variety of reasons. Primarily, transfers are restricted by regulatory authorities, transfer agents, broker-dealers, clearing firms and/or by the issuer of the interest itself.
At a most-basic level, it is simply difficult for buyers and sellers of restricted securities to efficiently identify one other, let alone come to terms falling within regulatory and issuer-imposed restrictions. Furthermore, even where this initial “identification/terms” hurdle is overcome; it is necessary to address the further inherent difficulties efficiently identifying the valuation of a restricted interest vis-à-vis valuation of a corresponding publically-traded interest. As is well known to those experienced in the restricted securities industry, trading within this market is limited in large measure by its inherent opacity, or lack of transparency, and inefficiency.
Still a further obstacle to the placement, registration and sale, of restricted securities results from the difficulty attendant with merely identifying a brokerage firm or clearing house willing to accept such securities for deposit or sale. One reason that brokerage firms and clearing houses have been increasingly less willing to accept restricted securities for deposit or sale is directly related to compliance requirements imposed by Financial INdustry Regulatory Authority (FINRA) Regulatory Notice 09-05, which reminds firms of their responsibilities to ensure that they comply with the federal securities laws and FINRA rules when participating in unregistered resale of restricted securities, particularly in situations where the surrounding circumstances place the firm on notice that it may be participating in illegal, unregistered resale of restricted securities, such as when a customer physically deposits certificates or transfers in large blocks of securities and the firm does not know the source of the securities.
As a result of FINRA Regulatory Notice 09-05 (April 2010), there has been an increase in the responsibility imposed upon financial institutions with regard to allowing unqualified investors or purveyors of fraudulent schemes to trade in these, often thinly-traded and speculative, securities. An additional reason that financial institutions have by-and-large chosen not to accept private placements is the increasing incidence of fraudulent-based certificates and related supporting documents. The refusal of these institutions to accept restricted shares has severely hampered the corresponding market for these types of securities.
Accordingly, there is a well-recognized, as of yet unmet, need in the art for a novel system and corresponding method, which overcome the drawbacks, limitations and disadvantages of currently-employed restricted securities systems and methods. It would be highly desirable to provide such a system and method that effectively overcomes the aforementioned imposed challenges, by enabling and facilitating real time exchange of information, regulatory clearance, valuation and transfer of interest.